Shift Capital to the GST
to reduce the current
income disparity to...
see slider below.
Besides
land and labor, production requires capital,
which means money to fund things like machinery and software.
By the
Savings Identity, capital is in the hands of "the Rich",
who only deploy it if they expect a return. That makes
them richer and it makes others resentful.
One way to give a return is to pay out dividends.
However there is a second way - hold shares while
their market value grows, boosting the Asset
side of their
balance sheet
higher than the Debit side.
Selling them eventually gives a Capital Gain.
If the government is the buyer, its own balance sheet
will start growing if the shares continue growing.
Thus the government can issue debt, buy shares and
claim that its balance sheet has not changed
- and should keep getting better.
There are many low volatility stocks that both grow
and pay dividends. We propose here to pay the dividends
to people who are already receiving GST supplements.
Buying the stocks gives the owners a return, which
causes less resentment than "taxing the rich".
The results below: qaz
1st]00[%
$]01[k
$]02[k
$]03[k
$
]04[k
qaz
Assumption:... The RHS shows ...qaz
qazqazqaz
"Perturbation theory" models buying up the above
capital over five years, starting in
2024.
Details: UBI/GST/Taxation
At present transfer payments deliver minimal
UBI by taxing earnings of other people.
The CPP fund already pays out disability pensions, and
GST pays low-income households $589 monthly plus $231 per minor.
GST only transfers funds between consumers
(demand-side)
whereas the CPP plan holds capital that works
supply-side.
It is large and
well-managed - dividends and interest go into the plan,
keeping ahead of inflation.
This suggests funding UBI from earnings of capital.
The first key is to understand that
money is no longer backed by gold et. al. but is now
"printed"
by Central Banks as simple journal entries.
Taxation and the Key Interest
Rate now pull it back
out of the economy.
Taxes do not fund governments, as
Laffer et. al. assumed. Instead taxes recoup government
spending of printed money to control inflation.
Alternatively, a Sovereign Wealth Fund can invest
(not spend) new money.
No need for taxes - stocks offset the debt.
The new fund would purchase
low-Beta
stocks which then replace
transfer payments
to low-income taxpayers.
The market value of shares appears on the Assets side of the
balance sheet,
and should grow to more than offset the printed-money
Liabilities side.
When governments spend or invest, the Central Bank will
create a journal entry (Credit), which is
injected into the economy.
That migrates to a Liablity (Debit) on the government's
balance sheet and has to be paid back with interest on
short term bonds which are part of the process.
In conventional Balanced Budgets, the difference between
taxation and spending is kept at zero - Liabilities are
nullified via. cash flow rather than via Assets.
In the case of UBI, the Liability becomes the total
purchase price of shares, whose Market Value is the
compensating Asset value. The difference starts at
zero and favors the Asset side unless Fair Market Value
growth is less than interest paid on the Liability side.
Now there are two cash flow sources - taxation and Dividends -
so it is no longer neccessary to "tax the rich" to keep the
budget balanced. The Canada Pension Plan already works that way.
The second key is to buy shares from "the rich" rather than
confiscating wealth with taxation; and to select firms who
are already winners.
That shifts private capital into higher risk/reward
investments, harnessing the Entrepreneurial Spirit - if
people do not resent competition from debt money in the
stock market. The following slider is zero if sellers do not
change whether they re-invest the
proceeds:
Dividend yield for the S&P/TSX ranges between 2.8% and 3.5%
with more market growth than inflation.
"Growth Stocks" offer even more total return, and if
a fund buys only things yielding 3%/yr, it crowds
private investors into other things. Sovereign Wealth funds around the world
are already doing that.
Presumably sellers of stocks to the Fund will re-invest
the proceeds. The new money will stimulate consumer sentiment
in the low-income group and boost the GDP.
The entrepreneurial spirit is triggered when people
see "good times".
Its charter should prevent distributing more UBI than is
coming in from publically declared dividends of publically
traded shares. Thus the Balance Sheet will grow while
UBI will shift taxation onto people who like spending.
qaz
We will also assume that the ratio between GDP and total
capital in the economy remains constant, so new investment
should lead to GDP growth.
New Role of Taxation
Normally government spending leads to reduction of the GDP
by taxing income groups who would otherwise invest.
In this case, dividends replace a big part of transfers
to "the poor", who then spend them and get taxed.
That leads to a lower overall tax rate.
Governments inject
created money
into the economy with
spending and pull it back out by taxing other transactions.
Inflation is zero if those totals are equal.
The velocity of money V, or the speed at which
currency changes hands, is defined by the formula
V=
where P is price,
Q is output, and M is money supply.
V represents how many times per year a dollar purchases goods.
Note that the top, PQ, is also the GDP.
Thus circulation reduces the required tax rate by
, a ratio that drops when government spending
is replaced by other transactions.
If
Fiat Currency
is issued to buy publically traded shares, it does
not increase the money supply - it stays on a Balance
Sheet and its value typically keeps growing.
However, the shares pay dividends that will be spent,
increasing the velocity of circulation and thus
increasing government revenue at a given tax rate.
Presently, government spending includes transfer payments
that could be replaced by dividends.
M2 was $2600Bn at the end of 2024 and GDP was $2241Bn,
so V=1.12 and taxation was only affected 12% by
circulation. Federal Goverment revenue totaled $459.5Bn
or 20.5% of GDP and spending was 23%, predicting
2.5%/yr inflation (2.4 observed).
Options Trading is a
proven way of managing risk, and it shows up
in News reports as "triple witching" days etc.
This gives a volatility criterion to reliably select "safe" investments.
Two parameters, Alpha and Beta, measure growth
rate and risk respectively.
ETFs which hold stocks with the lowest Beta/risk
typically grow at 6%/yr, which would result in
a positive balance sheet if the fund simply "prints"
money for their purchase and does not distribute
it to GST recipients.
Such ETFs also typically pay out 3%/yr in cash,
which we propose should be paid out as UBI/GST.
To determine (past) growth rate and mid-point of stocks one
can use the slope and location of the EMA200.
There is a way the fund can buy only below the average price of
shares, making private investors pay more.
The Fund could only purchase stocks when they are
below a trend line representing the middle of the
rising volatility band. Something like the
Exponential Moving Average
could be used to define where the middle is, recognizing
that it lags the trend line by over half a year.
This ensures that the Balance Sheet averages a Rate Of
Return that is equal to or better than average,
and it tends to push up mature share prices, crowding
Entrepreneurally - minded investors into higher-risk
stocks.
On a logarithmic chart, draw a straight line that
is tangent to the EMA200. Calculate the slope of
the natural logarithm to get growth rate.
The EMA200 lags the average price by one half year,
so the price to start buying can now be obtained.
The down-side is that it further reduces Beta
of the shares the Fund already holds, so Fund Managers
would need to avoid getting locked into a small group
of investments.
2024 Conditions Before Perturbation:
Inflation was 2.4%/yr,
prime interest rate was 7.5%/yr,
unemployment was 6.7% and
Supply and Demand both equaled GDP of $2241 Billion.
GDP growth rate has been near 2%/yr and Return On
Capital has been 8.5%/yr.
GDP equals spending (Demand Side);
=>
23% spending by Governments, the revenue for which was
>
Personal Income Tax 46.4%,
> Non-Resident Income Tax: 2.9%
> Corporate Income Tax: 21.0%,
> Other: (GST, energy taxes, etc.) 29.5%.
=>>Federal revenue (Google AI): $459.6Bn.
Provincial totals: $180.6Bn. We will use sliders to change
these percentages, and will assume revenues will
change by the same percentage as GDP does.
=>
77% requiring capital: ($20,200Bn)
-----------------------------------------
The need for investment/savings drives the "tax and spend"
objection of the political right.
However, lower labor cost gives employers more
to invest when wages do not have to cover services and
infrastructure that are public.
(See "Land, Labor and Capital" below.)
-----------------------------------------
>55% of the GDP was consumption & debt
=>>Shelter accounted for 32.1% ($396Bn) and food 15.7% ($192Bn) of consumption.
=>>Household mortgages are a large portion of debt.
=>>The total value of Canada's housing assets was $4200 Bn in 2024,
so the equivalent of rent would be .396/4.2 or 9.4%/yr.
=>>~1/3 of households (~5 million) rent their homes.
=>>Household debt was 176.4% of disposable (gross-tax) income.
This ratio is similar over income levels, and the average
rate was 4.2% more than the Key Rate below.
>and 21% was investment
=>> Households saved approximately $3785 each: 3.8% of GDP, totaling $85.2 billion.
=>>Savings are what is left over after Consumption, Interest and Taxes; and
=>>by the Savings Identity, it is part of overall Investment of 21% of GDP.
>and 1% net exports.
-----------------------------------------
Land, Labor and Capital are the inputs to the following supply
side of the GDP; those parties who receive what is spent above:
The average net profit margin for capital investments was 8.54%.
(Gross across all industries 36.56%)
Thus total capital is about $20,206Bn, approximated by
non-Government 77% of equilibrium between supply and demand in 2024
divided by 8.54% return On Capital from web data.
Total asset value of Canadian businesses was $17 trillion as of 2022.
($2.5 trillion foreign-controlled.)
We will use $20 trillion working capital.
-----------------------------------------
GDP also equals income (Supply Side):
>
distributed over 31.814 million tax returns (22.5 million households).
>Corporate Income comes from Consumer spending
=>>Part of it is diverted into Savings/Investment, but much of the $20,200Bn investment is financed by debt.
>
Average Individual Gross Income: $70.4k from $Bn 2241 GDP/ 31.8 million tax returns.
>
